BoE still waiting to see
The Pound had another decent session yesterday, at one point breaking above 1.3150 on the Dollar and closing firmly above 1.3100. Services PMI data printled slightly lower than expected for the UK at 56. This morning the Bank of England has held interest rates at 0.10% as expected, and kept the bond-buying unchanged at £745bn. The bank said that it doesn’t plan to tighten policy until it’s more certain about the outlook for inflation, it expects unemployment to rise to about 7.5% by the end of the year, with GDP 20% lower in Q2.
Negative rates were also mentioned, they will ‘continue to review the appropriateness of a negative policy rate as a policy tool alongside the broader toolkit’. Overall the Pound is up this morning, gaining 0.4% on the Euro and spiking briefly above 1.3170 against the Dollar.
ADP reported an increase of only 167,000 private-sector jobs in July, far below 1.5 million expected. While America’s largest payroll provider has found it hard to project the official Non-Farm Payrolls figure, it has been pointing to the direction of travel. The employment component of the ISM Non-Manufacturing Purchasing Managers’ Index also pointed to weakness in hiring. That hurt the dollar, despite an upbeat headline number.
The Trump administration said on Wednesday that the Chinese-owned short-video app TikTok and the WeChat messenger are significant security threats and added that it is planning to step up efforts to purge untrusted Chinese apps from the US digital networks.
Another factor that could put equities under pressure and lift the US dollar is the political deadlock in Washington, where the lawmakers are still struggling to hash out an additional stimulus package.
The US Dollar’s weakness may have also contributed to the continuous surge in gold prices as they comfortably traded above a record high of $2,000/oz. The precious metal’s rise has come on the heels of depressed yields – thereby decreasing the cost of holding a non-interest bearing asset – and speculation that monetary and fiscal stimulus efforts may cause future inflation to swell.
The Euro is currently trading around the 1.1865 mark against the Dollar, with the pair failing to establish a secure foothold above the 1.19.
Having regained some poise following the corrective downside after reaching over 2 year highs of the 1.19 mark at the end of last week. The sharp move up, while largely triggered by broad Dollar selling. Also lending wings to the momentum around the common currency, the recently clinched deal on the European Recovery Fund helped put political fears within the region to rest, in the short term anyhow.
Data to watch
06:00 – GBP – BOE Monetary Policy Report
06:00 – GBP – MPC Official Bank Rate Votes
06:00 – GBP – Monetary Policy Summary
06:00 – GBP – Official Bank Rate
06:00 – GBP – MPC Asset Purchase Facility Votes
11:30 – GBP – BOE Gov Bailey Speaks
12:30 – USD – Unemployment claims